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  • normlasky normlasky Aug 4, 2010 9:02 AM Flag

    BBT Question

    Imo, the problem has been the huge amount of valuation allowance booked to non-interest expense over the last 5 quarters. Last quarter it amounted to about $115 million. It represented additional write-downs of reos.

    At the last conference call, King and Starnes both said real estate values were much better. Therefore, assuming the market remains stable this quarter there should be no reason for this type of charge to continue. In fact, last quarter charge of $115 million is contradictory to an improving real estate market.

    The big problem of course is adc loans. They make up 5% of loans and 30% of losses. I think losses of builder adc loans have peaked. Balance has been cut by about 2/3 and I look for it to start to build back up. This is good news for adc land liquidation.

    Mortgage loan delinquencies look good. Last quarter charge-off of $209 million should drop by about 3/4. Retail loans are ok and will get better as bad lot loans are weeded out.
    Car loans and specialized lending are performing well. C&i has worsened some in most recent quarter but I think it's still ok.

    I have some concern over the deterioration of other cre loans but believe this is more a function of placing several hundred million of performing loans on non-accrual status as noted by Starnes in cc because the bank is attempting to identify as many of the non-performers now instead of down the road.

    My beef with bbt is the reporting of the valuation allowance and net charge-offs. At best I believe that this area has not been reported fairly. I agree with bbt back end strategy of reporting losses to prevent shareholder dilution. Adc market has been almost non-existent and it's stupid to write-down bad loans by 80%. Now that the market has recovered some, bbt can start moving some of these bad loans.

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    • I have not posted here for a long time. I read your's but would like some commentary on loan growth, NIM performance, and BB&T's credit decision process. That BB&T may be digging itself out from bad loans is fine, but as a pretty large financial insitution, that should be yesterday's news. Credit spreads have tightened dramtically over the past quarter and issuers are teking on, refinancing, etc. at a fairly hefty level ("feasting" on low interest rates is how the WSJ termed it). This stock will go no place if the focus remains balance sheet repair. The market wants growth right now. I look on this stock to almost a decade ago when it was in the high 30s. Long way yet to go. And they wont get there unless (a) they make substantial increases to assets and (b) those assets yield enough to raise the dividend, becuase (c) their current asset base is withering, eventually these loans come due, and if the borrowers dont stick with BB&T then you have a real problem.

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